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New jobless claims drop unexpectedly to 545K

The number of newly laid-off workers seeking
unemployment benefits fell last week to the lowest level since
early July, evidence that job cuts are slowing.

The Labor Department said Thursday that initial claims for
unemployment insurance dropped to a seasonally adjusted 545,000
from an upwardly revised 557,000 the previous week. Wall Street
economists expected claims to rise by 5,000, according to Thomson
Reuters.

The decline was the third in the past four weeks. The four-week
average, which smooths out fluctuations, dropped 8,750 to 563,000.
Despite the improvement, that's far above the 325,000 per week that
is typical in a healthy economy.

"The message here is that the labor market's healing process is
agonizingly slow," Joshua Shapiro, chief economist at MFR Inc.,
wrote in a note to clients.

Another government report provided mixed news on the housing
market. The Commerce Department said construction of new homes and
apartments rose 1.5 percent to an annual rate of 598,000 units last
month, the highest level since November and 24.8 percent above the
record low hit in April. Applications for building permits, a good
forecaster of future activity, also rose.

Still, the volatile multifamily sector drove the gains. The
larger single-family sector dipped 3 percent last month to an
annual rate of 479,000 units, the first setback following five
straight monthly increases.

While single-family housing starts are well above the historic
lows hit late last year and early in 2009, the recent results most
likely are a rebound "from unsustainably weak results ...
reinforced by a temporary boost to demand" from the $8,000
first-time homebuyer tax credit that ends Dec. 1, Shapiro said.

"Gains from here on will probably be much more difficult to
achieve," due to high unemployment, tight credit and a large
number of new and existing homes already on the market, he said.

The number of people claiming jobless benefits for more than a
week rose by 129,000 to a seasonally adjusted 6.2 million. The
continuing claims data lags initial claims by one week.

When federal extended benefits are included, 9.01 million people
received unemployment insurance in the week ending Aug. 29. That's
down from 9.16 million the previous week. Congress has added up to
53 weeks of extended benefits on top of the 26 weeks provided by
the states.

Thursday's report comes a day after the Federal Reserve said
production by the nation's factories, mines and utilities increased
for the second straight month in August, the latest sign the
economy is recovering.

But the economy isn't improving fast enough to spur greater
hiring. Fed Chairman Ben Bernanke on Tuesday said the recession is
likely over, though he noted that the economy isn't likely to grow
fast enough to lower unemployment anytime soon.

The jobless rate is widely expected to peak next year above 10
percent, up from its current 9.7 percent. Some analysts say that
claims need to drop below 400,000 before the unemployment rate will
start to decline.

More job cuts were announced this week. Drugmaker Eli Lilly &
Co. said Monday that it will cut 5,500 jobs over the next two
years, 14 percent of its work force, as it restructures the company
into five business units.

Among the states, Washington had the largest increase in claims
of 4,546, which it attributed to greater layoffs in the
construction, public administration, and manufacturing industries.
The next largest increases were in Pennsylvania, Massachusetts,
North Carolina and Illinois. The state data lag initial claims by a
week.

California had the largest drop in claims of 2,751. The next
largest decreases were in New York, Wisconsin, Texas and New
Jersey.